In opening the press conference, European Commission representative Servaas Deroose echoed earlier predictions of a contraction of Greek GDP this year by 3 percent, while pointing to encouraging signs due to increased exports, while fiscal policy was on track with the deficit cut to just above 9 percent for 2010.
Both representatives referred at length to the need for the Greek government to push through with structural reforms as a way to stimulate economic growth and create jobs, with the emphasis -- a "fundamental acceleration" was cited -- in the coming period on liberalising so-called "closed professions", such as lawyers, engineers etc.
On his part, European Central Bank (ECB) Klaus Hasuch emphasised that Greek banks must now "move to a sustainable market-based model".
Hasuch added that domestic banks must now explore alliances both within and outside Greece and reduce operating costs while at the same time raising efficiency. He also said liquidity supplied by the ECB to Greek banks has had a major stabilising effect.
The entire statement read:
"Our overall assessment is that the program has made further progress toward its objectives. While there have been delays in some areas, the underlying fiscal and broader reforms necessary to deliver the program’s medium-term objectives are being put in place. However, major reforms still need to be designed and implemented to build a critical mass necessary to secure fiscal sustainability and economic recovery.
"Regarding the outlook, the recession has to date been close to what was anticipated. Underlying inflation has remained low in the face of rising commodity prices. Downward movement of unit labor costs should support gains in competitiveness. Encouragingly, exports have performed well recently. We continue to expect the economy to stabilize late in 2011.
"In the fiscal area, against the sharp macro headwinds, the authorities delivered a 6 percent of GDP fiscal adjustment in 2010, reducing the deficit to about 9½ percent of GDP. This is an impressive achievement, but some tensions were evident in budget implementation, in particular shortfalls in revenue collections, and problems with spending control. The program has been designed to address these problems, and the work is progressing.
"The government has begun to specify a medium-term budget strategy, which will define time-bound actions to realize the full fiscal adjustment through 2014. The reforms are complex and cover among other issues taxation, health, public employment, and state enterprise reforms. The government is appropriately allowing time for consultation with social partners before moving beyond the design phase to begin implementation. The government’s full commitment to this complicated process of institutional change, not least determination to resist vested interests, will be critical to success.
"Concerning financing, the government continues to work toward securing a gradual return to bond markets at affordable interest rates. Strong program implementation, with financial support from the international community, remains key to achieving this. It is equally important that the government notably scales up its privatization program, and more generally realizes better returns from its extensive portfolio of assets. Work is proceeding to establish a comprehensive inventory of the government’s real estate assets, and to define a phased action plan.
"As to the financial sector, tight liquidity and rising non-performing loans are putting strains on the banking system and credit is contracting. Encouragingly, private banks have recently enjoyed some success in raising capital. It is essential that the government makes progress in addressing the stability and efficiency of the banks under its control. The Eurosystem has been a key source of liquidity support for the system, and this is allowing banks to gradually move towards a sustainable medium-term funding model. The Financial Stability Fund is available to provide support to banks in the system, if needed.
"Structural reforms are making progress. Legislation covering aspects of the labor market, the liberalization of closed professions, health care reform, licensing, and the competition authority has either been passed, or soon will be. The authorities’ focus must now be on implementing these laws, to make sure the new frameworks are effective as soon as possible. To secure economic recovery, early progress on structural reforms remains critical. The government must ensure that reforms are sufficiently ambitious and comprehensive to tackle the deep seated structural challenges facing Greece. The next steps will focus on, among other things, reviving the tourist industry, removing administrative barriers to exports, and strengthening public procurement.
"Next Steps. Approval of the conclusion of the third review will allow the disbursement of €15 billion (€10.9 billion by the euro area Member States, and €4.1 billion by the IMF). The mission for the next program review is scheduled for May 2011."